Moody’s downgrade of Turkish banks ‘unethical’ – Turkish watchdog

A decision by ratings agency Moody’s to downgrade the credit ratings of 17 Turkish banks was “unethical”, said Mehmet Ali Akben, head of the country’s banking regulator.

The decision on Thursday came right after Turkey’s central bank raised interest rates to help curb inflation, stabilise the economy and bolster the lira.

Turkish banking stocks fell 2.2 percent on Friday, extending an 18-month low. Moody’s said banks’ balance sheets were coming under pressure as financial conditions deteriorated, bad loans increased and financing from abroad became more problematic.

Turkey's lira has slid about 15 percent against the dollar this year, pushing inflation and interest rates higher and making it more difficult or expensive for companies to service and repay foreign currency-denominated loans, which amount to more than $225 billion. The central bank raised interest rates by 125 basis points on Thursday, adding to a 300 basis-point increase in May, to 17.75 percent. Inflation stands at 12.2 percent, about four times higher than the emerging-market average.

Akben said Turkish banks were strong, pointing to capital adequacy ratios that exceeded 15 percent despite the recent sell-off in the lira. Banks, with few bad loans on their books, were also finding plenty of financing abroad, he said, with borrowing increasing 8.5 percent at the end of April from a year ago to $167 billion.

He also said that syndicated loan rollovers by banks had risen to 111 percent from 100 percent and loan spreads were not widening, with the cost of borrowing only increasing due to rising international LIBOR rates.

Turkish Economy Minister Nihat Zeybekci said Moody’s decision was of no concern to the government. Turkey aimed to continue breaking records in the global economy with its high growth rates, he said.